Occupy Wall Street Protesters

Are Fed Up With Both Parties

SolidarityEconomy.net via AP

NEW YORK, Oct 6 2011 -- Their chief target is Wall Street, but many of the demonstrators in New York and across the U.S. also are thoroughly disgusted with Washington, blaming politicians of both major parties for policies they say protect corporate America at the expense of the middle class.

"At this point I don't see any difference between George Bush and Obama. The middle class is a lot worse than when Obama was elected," said John Penley, an unemployed legal worker from Brooklyn.

The Occupy Wall Street movement, which began last month with a small number of young people pitching a tent in front of the New York Stock Exchange, has expanded nationally and drawn a wide variety of activists, including union members and laid-off workers. Demonstrators marched Thursday in Philadelphia, Salt Lake City, Los Angeles and Anchorage, Alaska, carrying signs with slogans such as "Get money out of politics" and "I can't afford a lobbyist."

The protests are in some ways the liberal flip side of the tea party movement, which was launched in 2009 in a populist reaction against the bank and auto bailouts and the $787 billion economic stimulus plan.

But while tea party activists eventually became a crucial part of the Republican coalition, the Occupy Wall Street protesters are cutting President Barack Obama little slack. They say Obama failed to crack down on the banks after the 2008 mortgage meltdown and financial crisis.

"He could have taken a much more populist, aggressive stance at the beginning against Wall Street bonuses, and exacting certain change from bailing out the banks," said Michael Kazin, a Georgetown University history professor and author of "American Dreamers," a history of the left. "But ultimately, the economy has not gotten much better, and that's underscored the frustration on both the right and the left."

Obama on Thursday acknowledged the economic insecurities fueling the nearly 3-week-old Wall Street protests. But he pinned responsibility on the financial industry and on congressional Republicans he says have blocked his efforts to kick-start job growth.

"I think people are frustrated and the protesters are giving voice to a more broad-based frustration about how our financial system works," he said at a nationally televised news conference. "The American people understand that not everybody has been following the rules, that Wall Street is an example of that ... and that's going to express itself politically in 2012 and beyond."

The president has been pushing for a $443 billion jobs plan to be paid for in part through a tax on the wealthy. Republicans have resisted such tax increases.

GOP presidential candidates Mitt Romney and Herman Cain have criticized the anti-Wall Street protests. All the Republican contenders have also pushed back against the demonization of Wall Street. They accuse the Obama administration of setting regulatory policies that have stifled job creation and say his health care overhaul will prevent many businesses from hiring new workers.

In Zuccotti Park, the center of the Occupy Wall Street protests in New York, activists expressed deep frustration with the political gridlock in Washington. While some blamed Republicans for blocking reform, others singled out Obama.

"His message is that he's sticking to the party line, which is `we are taking care of the situation.' But he's not proposing any solutions," said Thorin Caristo, an antiques store owner from Plainfield, Conn.

But Robert Arnow, a retired real estate worker, said the Republicans need to tell their congressional leaders, "You're standing in the way of change."

Quacy Cayasso, a Web designer, didn't watch Obama's news conference even though it was broadcast on TV monitors at the protest site in New York.

"He's a cool president, but he was given a hard task," Cayasso said. "He should get some gratitude for what he's done so far, but he's been overlooking jobs and not putting much effort into that until now."

A Sleep-In Protest in the Shadow of Power

By Manny Jalonschi
SolidarityEconomy.net via NYC Indypendent

Sept 19, 2011 - Surrounded by the headquarters of some of the world’s most powerful financial players, over two thousand protesters converged on Wall Street this Saturday. By the end of the second day, those occupying Liberty Park, formerly known as Zuccotti Park on Broadway and Liberty St., had settled in, partially helped by pizza, hot chocolate and blankets paid for and delivered by their supporters in New York City and across the country.

The Wall Street occupation began on Sept. 17 after months of planning and encouragement by Adbusters, who originally called for the occupation in response to a corporate-controlled political system that is no longer serving the needs of the majority of its people. They were soon joined by the hacktivist organization Anonymous in calling for a general people’s assembly. While the meetings leading up to the protest focused on dozens of smaller goals, Saturday morning, in the dozen or so people’s assemblies that broke down in Zuccotti Park now renamed Liberty Square, the protesters identified their key goals as liberating America from the death-grip of finance and creating a sustainable, just future for every member of the country. Specifics ranged from a progressive tax system, ending the wars and creating universal healthcare to more localized solutions like supporting and participating in a variety of worker owned cooperatives.

The protest began around noon in Bowling Green Park with approximately 3,000 people filing in from various ad hoc rallies across the Financial District — including a crowd that swarmed around the Wall Street Bull earlier in the day. The crowd then began marching towards 1 Chase Manhattan Plaza. While the group’s original goal had been to occupy the sidewalk in front of the building, the area was cordoned off and surrounded by more than 40 police cars and 80 police officers. Instead, the crowd, which had decreased to less than 2,000 by 3 p.m., marched to Zuccotti Park on the Corner of Liberty St. and Broadway.

Once they were assembled, dozens of organizers stood on park benches and tables urging the general assembly, now numbering around 2,000, to break down into smaller assemblies. Within about ten minutes, a dozen or so general assemblies had broken out — but not without the drowning sound of a brass band, hired by an unknown group to disrupt the protesters. The brass band ended its performance within a half-hour, by which time most of the general assemblies had already progressed with their agenda.

The general assemblies, who began their meetings in circles, sitting on the concrete, broke down discussions into three general areas — problems, solutions and strategies. Most discussions began with an open session for assembly participants to vocalize what they viewed as the biggest challenges the country faces in freeing itself from the power of finance. While much discussion focused on the corruption and collusion between Wall Street and Washington, many assembly members also noted that general apathy was also a problem of education.

The second part of the general assemblies focused on developing general solutions for the problems just identified. Regulation, transparency and again education became the hot talking points for this session. By the third session, assemblies were working on exchanging strategies for local, national and international action.

And in fact, those occupying Wall Street were not alone. News flooded in throughout the weekend of sister-rallies across the United States, including Seattle, San Francisco and Los Angeles. The international presence was heavy at the rally itself. Not only had protesters driven in from across the country, but activists we spoke to also arrived from as far as Mexico and Tunisia.

“This is my first protest, my first movement,” explained Kyle from Buffalo, New York, donning the Guy Fawkes mask symbolic of the Anon hacktivist collective. “A system that’s only focuses on rewarding greed should be challenged,” he said on Saturday, echoing the feelings of many protesters at the occupation who confessed the enormity of the problem requires an equally enormous series of solutions.

The open mic on the North side of the park gave air to many of the ideas. Sidney, a 50-year-old office worker from Connecticut, grabbed the microphone on Saturday and demanded an end to what he described as a “permanent tax holiday for the banks.”

While Saturday saw the most activity in terms of rallies, assemblies and marches, Sunday became a day of support for the occupation. Thousands of New Yorkers stopped in to either see or support the growing city of sleeping bags, signs and popular assemblies. The highlight of the day was when over $2,000 in pizza was ordered in less than an hour by supporters from around the world for the protesters in Zuccotti Plaza. By the second evening, the call went out for blankets as temperatures dipped into the 50’s.

By Monday afternoon reports of police interference were growing, as officers began arresting people who were using chalk to write goals and slogans on the concrete they occupied. But even with a heavy police presence, which included over 200 officers in the immediate area by Monday afternoon, protesters remained unmoved in their demands for a fairer political system. @Anon_support, a leading Twitter organizer of the event, even began organizing after-work parties in the vicinity to draw out more supporters from the New York City area.

By DAVID HARVEY
SolidarityEconomy.Net via Counterpunch

Does this crisis signal the end of neo-liberalism? My answer is that it depends what you mean by neo-liberalism. My interpretation is that it’s a class project, masked by a lot of neo-liberal rhetoric about individual freedom, liberty, personal responsibility, privatisation and the free market. These were means, however, towards the restoration and consolidation of class power, and that neo-liberal project has been fairly successful.

One of the basic principles that was set up in the 1970s was that state power should protect financial institutions at all costs. This is the principle that was worked out in New York City crisis in the mid-1970s, and was first defined internationally when Mexico threatened to go bankrupt in 1982. This would have destroyed the New York investment banks, so the US Treasury and the IMF combined to bail Mexico out. But in so doing they mandated austerity for the Mexican population. In other words they protected the banks and destroyed the people, and this has been the standard practice in the IMF ever since. The current bailout is the same old story, one more time, except bigger.

What happened in the US was that 8 men gave us a 3 page document which pointed a gun at everybody and said ‘give us $700 billion or else’. This to me was like a financial coup, against the government and the population of the US. Which means you’re not going to come out of this crisis with a crisis of the capitalist class; you’re going to come out of this with a far greater consolidation of the capitalist class than there has been in the past. We’re going to end up with four or five major banking institutions in the United States and nothing else.

Many on Wall Street are thriving right now. Lazard’s, because it specialises in mergers and acquisitions, is making megabucks. Some people are going to be burned, but overall it’s a massive consolidation of financial power. There’s a great line from Andrew Mellon (US banker, Secretary of the Treasury 1921-32), who said that in a crisis, assets return to their rightful owners. A financial crisis is a way of rationalising what is irrational – for example the immense crash in Asia in 1997-8 resulted in a new model of capitalist development. Disruptions lead to a reconfiguration, a new form of class power. It could go wrong, politically. The bank bailout has been fought over in the US Senate and elsewhere, so the political class may not easily go along – they can put up roadblocks but so far they have caved in and not nationalised the banks.

But this can lead to a deeper political struggle: there is a strong sense of questioning why are we empowering all the people who got us into this mess. Questions are being asked about Obama’s choice of economic advisers – for example Larry Summers who was Secretary of the Treasury at the key moment when a lot of things started to go really wrong, at the end of the Clinton administration. Why would you now bring in so many of the characters who are pro-Wall Street, pro-finance capital, who did the bidding of finance capital back then? Which is not to say that they aren’t going to redesign the financial architecture because I think they know it’s got to be redesigned, but who are they going to redesign it for? People are really discontented about Obama’s economic team, even in the mainstream press.

A new state financial architecture is required. I don’t think that all existing institutions like the Bank of International Settlements and even the IMF should be abolished; I think we will need them but they have to be revolutionarily transformed. The big question is who will control them and what their architecture will be. We will need people, experts with some sort of understanding of how those institutions do work and can work. And this is very dangerous because, as we can see right now, when the state looks to see who can understand what is going on in Wall Street, they think only insiders can.

Disempowerment of labor: enough is enough

Whether we can get out of this crisis in a different way depends very much upon the balance of class forces. It depends upon the degree to which the entire population says ‘enough is enough, let’s change this system’. Right now, when you look at what’s been happening to workers over the last 50 years, they have got almost nothing out of this system. But they haven’t risen up in revolt. In the US over the last 7 or 8 years, the condition of the working classes in general has deteriorated, and there has been no mass movement against this. Finance capitalism can survive the crisis, but it depends entirely upon the degree in which there is going to be popular revolt against what is happening, and a real push to try and reconfigure how the economy works.

One of the major barriers to continuous capital accumulation back in the 1960s and early 70s was the labor question. There were scarcities of labor both in Europe and the US and labor was well organised, with political clout. So one of the big barriers to capital accumulation during that period was; how can capital get access to cheaper and more docile labor supplies? There were a number of answers. One was to encourage more immigration. In the United States there was a major revision of the immigration laws in 1965 that in effect allowed the US access to the global surplus population (before that only Europeans and Caucasians were privileged). In the late 1960s the French government was subsidising the import of Maghrebian labor, the Germans were bringing in the Turks, the Swedes were bringing in the Yugoslavs, the British were drawing upon their empire. So a pro-immigration policy emerged which was one attempt to deal with the labor problem.

The second thing you go for is rapid technological change which throws people out of work and if that failed then there were people like Reagan, Thatcher and Pinochet to crush organized labor. And finally capital goes to where the surplus labor is by off-shoring, and this was facilitated by two things. Firstly technical reorganisation of the transport systems: one of the biggest revolutions that happened during this period is containerisation which allowed you to make auto parts in Brazil and ship them for very low cost to Detroit or wherever. Secondly the new communications systems allowed the tight organization of commodity chain production across the global space.

All of these solved the labor problem for capital, so by 1985 capital has no labor problem any more. It may have specific problems in particular areas but globally it has plenty of labor available to it; the sudden collapse of the Soviet Union and the transformation of much of China added something like 2 billion people to the global proletariat in 20 years. So labor availability is no problem now and the result of that is that labor has been disempowered for the last 30 years. But when labor is disempowered it gets low wages, and if you engage in wage repression this limits markets. So capital was beginning to face problems with its market, and there were two things which happened.

The first was the gap between what labor was earning and what it was spending was covered by the rise of the credit card industry and increasing indebtedness of households. So in the US in 1980 you would find that the average household would owe around $40,000 in debts now it’s about $130,000 for every household, including mortgages. So household debt sky-rockets and that brings you to financialisation, and that was about getting the financial institutions to support the household debts of working class people whose earnings are not increasing. And you start with the respectable working class, but by the time you get to the year 2000 you start to find these sub-prime mortgages circulating. You are looking to create a market. And so finance starts to support the debt-financing of people who have almost no income. But if you hadn’t done that what would have happened to the property developers who are building the houses? So you try and stabilize the market by funding that indebtedness.

Crises of asset values

The second thing which happened was that from the 1980s onwards the rich are getting far richer because of that wage repression. The story we are told is that they will invest in new activity but they don’t; most of them start to invest in assets, i.e. they put money in the stock market, the stock market goes up so they think it is a good investment so they put more money in the stock market, so you get these stock market bubbles. It is a ponzi-like system without the Madoff’s organizing it. The rich bid up asset values, including stocks, property, and leisure property as well as the art market. These investments involve financialisation. But as you bid up asset values this carries over to the whole economy, so to live in Manhattan became all but impossible unless you went incredibly into debt, and everyone is caught in this inflation of asset values, including the working classes whose incomes are not rising. And now we’ve got a collapse of asset values; the housing market is down, the stock market is down.

There has always been the problem of the relationship between representation and reality. Debt is about the assumed future value of goods and services, so it assumes the economy is going to continue to grow over the next 20 or 30 years. It always involves a guess, which is then set by the interest rate, discounting into the future. This growth of the financial area after the 1970s has a lot to do with what I think is another key problem: what I would call the capitalist surplus absorption problem. As surplus theory tells us, capitalists produce a surplus, which they then have to take a part of, recapitalise it, and reinvest it in expansion. Which means they always have to find somewhere else to expand into. In an article I wrote for the New Left Review called ‘Right to the City’ I pointed out that in the last 30 years an immense amount of the capital surplus has been absorbed into urbanisation: urban restructuring, expansion and speculation. Every city I go to is a huge building site for capitalist surplus absorption. Now, of course, many of these projects stand unfinished.

This way of absorbing capital surpluses has got more and more problematic over time. In 1750 the value of the total output of goods and services was around $135 billion, in constant values. By 1950, it’s $4 trillion. By 2000, it’s $40 trillion. It’s now around $50 trillion. And if Gordon Brown is right it’s going to double over the next 20 years, to $100 trillion by 2030.

Throughout the history of capitalism, the general rate of growth has been close to 2.5% per annum, compound basis. That would mean that in 2030 you’d need to find profitable outlets for $2.5 trillion dollars. That’s a very tall order. I think there has been a serious problem, particularly since 1970, about how to absorb greater and greater amounts of surplus in real production. Less and less of it is going into real production, and more and more into speculation on asset values, which accounts for the increasing frequency and depth of the financial crises we’ve been having since 1975 or so; they are all crises of asset value.

My argument would be that if we come out of this crisis right now, and there’s going to be capital accumulation at 3% rate of growth, we’ve got a hell of a lot of problems on our hands. Capitalism is running into serious environmental constraints, as well as market constraints, profitability constraints. The recent turn to financialisation is a turn of necessity, as a way of dealing with the surplus absorption problem; but one that cannot possibly work without periodic devaluations. That’s what’s happening now, with the losses of several trillion dollars of asset value.

The term ‘national bailout’ is therefore inaccurate, because they’re not bailing out the whole of the existing financial system – they’re bailing out the banks, the capitalist class, forgiving them their debts, their transgressions, and only theirs. The money goes to the banks but not to the homeowners who’ve been foreclosed on, which is beginning to create anger. And the banks are using the money not to lend to anybody but to buy other banks. They are consolidating their class power.

The collapse of credit

The collapse of credit for the working class spells the end of financialisation as the solution for the crisis of the market. As a consequence of this we will see a major crisis of unemployment and the collapse of many industries unless there is effective action to change that. Now this is where you get the current discussion about returning to a Keynesian economic model, and Obama’s plan is to invest in a vast public works and investment in green technologies, in a sense going back to a New Deal type of solution. I am skeptical of his ability to do this.

To understand the current situation we need to go beyond what goes on in the labor process and production to the complex of relationships around the state and finance . We need to understand how the national debt and credit system have from the beginning been major vehicles for primitive accumulation, or what I now call accumulation by dispossession – as you can see from the building industry. In my ‘Right to the City’ article I looked at how capitalism was revived in second empire Paris because the state along with the bankers put together a new nexus of state-finance capital, to rebuild Paris. That provided full employment and the boulevards, the water systems and sewage systems, new transport systems, and it was through those types of mechanisms that the Suez Canal was built. A lot of this was debt financed. Now that state-finance nexus has undergone a massive transformation since the 1970s; it’s become far more international, it’s opened itself to all types of financial innovations including derivative markets and speculative markets etc. A new financial architecture has been designed.

What I think is happening at the moment is that they are now looking for a new financial set-up which can solve the problem not for working people but for the capitalist class. I think they are going to find a solution for the capitalist class and if the rest of us get screwed, too bad. The only thing they would care about is if we rose up in revolt. And until we rise up in revolt they are going to redesign the system according to their own class interests. I don’t know what this new financial architecture will look like. If we look closely at what happened during the New York fiscal crisis I don’t think the bankers or the financiers knew what to do at all, now what they did was bit by bit arrive at a ‘bricolage’; they pieced it together in a new way and eventually they come up with a new construction. But whatever solution they may arrive at, it will suit them unless we get in there and start saying that we want something that is suitable for us. There’s a crucial role for people like us to raise the questions and challenge the legitimacy of the decisions being made at present, and to have very clear analyses of what the nature of the problem has been, and what the possible exits are.

Alternatives

We need in fact to begin to exercise our right to the city. We have to ask the question which is more important, the value of the banks or the value of humanity. The banking system should serve the people, not live off the people. And the only way in which we are really going to be able to exert the right to the city is to take command of the capitalist surplus absorption problem. We have to socialize the capital surplus, and to get out of the problem of 3% accumulation forever. We are now at a point where 3% growth rate forever is going to exert such tremendous environmental costs, and such tremendous pressure on social situations that we are going to go from one financial crisis to another.

The core problem is how you are going to absorb capitalist surpluses in a productive and profitable way. My view is that social movement must coalesce around the idea that they want more control over the surplus product. And while I don’t support a return to the Keynesian model of the sort we had in the 1960s, I do think there was much greater social and political control over the production, utilisation and distribution of the surplus then. The circulating surplus was put into building schools, hospitals and infrastructure. This was what upset the capitalist class and caused a counter movement toward the end of the 1960s – that they were not getting enough control over the surplus. However, if you look at the data the proportion of the surplus which is being absorbed by the state has not shifted very much since 1970, so what the capitalist class did was to stop the further socialisation of the surplus. They also managed to transform the word government into the word ‘governance’, making governmental and corporate activities porous, which enables the situation we have in Iraq where private contractors milked the possibilities ruthlessly for easy profit..

I think we are headed into a legitimation crisis. Over the past thirty years we have been told, to quote Margaret Thatcher, “there is no alternative” to a neo-liberal free market, privatised world, and that if we didn’t succeed in that world it’s our own fault. I think it’s very difficult to say that when faced with a foreclosure crisis you support the banks but not the people who are being foreclosed upon. You can accuse the people being foreclosed upon of irresponsibility, and in the US there is a strong racist element in this argument. When the first wave of foreclosures hit places like Cleveland and Ohio they were devastating to the black communities there but some peoples’ response was ‘well what do you expect, black people are irresponsible. We are seeing right-wing explanations of the crisis which explain it in terms of personal greed, both in Wall Street and those who borrowed money to buy houses. So they attempt to blame the crisis on the victims. One of our tasks must be to say ‘no, you absolutely cannot do that’ and to try and create a consolidated explanation of this crisis as a class event in which a certain structure of exploitation broke down and is about to be displaced by an even deeper structure of exploitation. It’s very important this alternative explanation of the crisis is discussed and conveyed publicly.

One of the big ideological configurations we are going to have is what is going to be the role of home ownership in the future once we start saying things like you’ve got to socialize much more of the housing stock, as since the 1930s we have had huge pressures towards individualised home ownership as in a way of securing people’s rights and position.. We’ve got to socialize and recapitalise public education and health care long with housing provision. These sectors of the economy have to be socialized along with the banks.

Radical politics beyond class divides

There is another point we have to consider, which is that labor, and particularly organised labor, is only one small piece of this whole problem, and it’s only going to have a partial role in what is going on. And this is for a very simple reason, which goes back to Marx’s shortcomings in how he set up the problem. If you say to that the formation of the state-finance complex is absolutely crucial to the dynamics of capitalism (which it obviously is), and you ask yourself what social forces are at work in contesting or setting it up these institutional arrangements, labor has never been at the forefront of that struggle. Labor has been at the forefront in the labor market and over the labor process and these are vital moments in the circulation process, but most of the struggles which have gone on over the state-finance nexus are populist struggles in which labor has only been partially present.

For example in the US in the 1930s there were a lot of populists who supported the Bonnie and Clyde bank robbers. And currently many of the struggles going on in Latin America are more populist than labor led. Labor always has a very important role to play but I don’t think we are in a position right now where the conventional view of the proletariat being the vanguard of the struggle is very helpful when it is the architecture of the state-finance nexus (the central nervous system of capital accumulation) that is the fundamental issue. There may be times and places where proletarian movements may be highly significant, for example in China where I envisage them playing a critical part which I do not see them having in this country. What is interesting is that the car workers and automobile companies are in alliance right now in relation to the state-finance nexus, so in a way the grand dividing line of class struggle which has always been there in Detroit isn’t there anymore or at least not in the same way. We have a completely different kind of class politics going on and some of the conventional Marxist ways of viewing these things get in the way of a real radical politics.

There is also a big problem on the left that many think the capturing of state power has no role to play in political transformations and I think they’re crazy. Incredible power is located there and you can’t walk away from it as though it doesn’t matter. I am profoundly skeptical of the belief that NGOs and civil society organisations are going to change the world, not because NGOs can’t do anything at all, but it takes a different kind of political movement and conception if we are going to do anything about the main crisis which is going on. In the United States the political instinct is very anarchist, and while I am very sympathetic to a lot of anarchist views their perpetual complaints about and refusal to command the state also gets in the way.

I don’t think we are in a position to define who the agents of change will be in the present conjuncture and it plainly will vary from one part of the world to another. In the United States right now there are signs that elements of the managerial class, which has lived off the earnings of finance capital all these years, is getting annoyed and may turn a bit radical. A lot of people have been laid off in the financial services, in some instances they have even had their mortgages foreclosed. Cultural producers are waking up to the nature of the problems we face and in the same way that the 1960s art schools were centers of political radicalism, you might find something like that re-emerging. We may see the rise of cross-border organisations as the reductions in remittances spread the crisis to places like rural Mexico or Kerala.

Social movements have to define what strategies and policies they want to adopt. We academics should never view ourselves as having some missionary role in relation to social movements; what we should do is get into conversation and talk about how we see the nature of the problem.

Having said that I would want us to propose ideas. An interesting idea in the US right now is to get municipal governments to pass anti-eviction ordinances. I think there are a couple of places in France which have done that. Then we could set up a municipal housing corporation which would assume the mortgages, pay off the bank at so much on the dollar because the banks have been given a lot of money to supposedly deal with this, but they’re not.

Another key question is that of citizenship and rights. I think that rights to the city should be guaranteed by residency no matter what your citizenship is. Currently people are denied any political rights to the city unless they happen to be citizens. So if you’re an immigrant you don’t have any rights. I think there are struggles to be launched around the rights to the city. In the Brazilian constitution they have a ‘rights to the city’ clause which is about the right to consultation, participation and budgetary procedures. Again I think there is a politics which can come out of that.

A reconfiguration of urbanisation

In the US there is the capacity to act at a local level, with a lot going on about environmental questions, and over the past fifteen to twenty years municipal governments have often been more progressive than the federal government. There’s a crisis in municipal finance right now and there is likely to be significant agitation and pressure upon Obama to recapitalise a lot of municipal government (which is proposed in the stimulus package). He has said this is one of the things he is concerned about, especially since a lot of the issues which are happening are local ones, for instance the sub-prime mortgage crisis. As I have been arguing the foreclosure stuff must be understood as an urban crisis not just a financial crisis; it is a financial crisis of urbanisation.

Another important question is to think strategically about how the social economy in some alliance with labor and the municipal-based movements such as Right to the City could also be a component in a strategy. This relates to the question of technological development – for example I see no reason why you couldn’t have a municipal-based support system for the development of productive systems such as solar power, to create more decentralised employment apparatuses and possibilities.

If I could develop an idealised system now I would say in the US we should create a national redevelopment bank and take $500 billion out of that $700 billion they voted and the bank should work with municipalities to deal with neighbourhoods which have been hit by the foreclosure wave, because the foreclosure wave has been like a financial Katrina in many ways; it has wiped out whole communities, usually poor black or Hispanic communities. You go into those neighbourhoods and bring back the people who used to live in those communities and re-house them on a different basis of tenure, residency rights, and with a different kind of financing. And green those neighbourhoods, creating local employment opportunities in those fields.

So I could imagine a reconfiguration of urbanisation. To do anything on global warming we need to totally reconfigure how American cities work; to think about a completely new pattern of urbanisation, with new patterns of living and working. There are a lot of possibilities the left should be paying attention to – this is a real opportunity. But it is where I have a problem with some Marxists who seem to think, ‘yes! It’s a crisis; the contradictions of capitalism will now be solved somehow!’ This is not a moment for triumphalism, this is a moment for problematising. First of all I think there are problems with the way Marx set up those problems. Marxists are not very good at understanding the state financial complex or urbanisation – they are terrific at understanding some other things. But now we have to rethink our theoretical posture and political possibilities.

So there is a lot of theoretical re-thinking that is needed as well as practical action.

Transcribed by Kate Ferguson. Edited by Mary Livingstone.

David Harvey is a Distinguished Professor at the City University of New York (CUNY) and author of various books, articles, and lectures. He has been teaching Karl Marx’s Capital for nearly 40 years. He can be reached through his website, http://davidharvey.org

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Contradictions of the Mosaic Left:

Perspectives for Protests within the Crisis

25. Mai 2010

By Florian Becker & Christina Kaindl

http://www.zeitschrift-luxemburg.de/

'There is no question that immediate economic crises can in themselves not bring about fundamental changes; they can only prepare more favorable ground for the diffusion of certain approaches for thinking through, posing and solving, the questions that are decisive for the whole further development of the life of the state. ' – Antonio Gramsci, Analysis of the Situation: Relations of Force. Prison Notebooks, 13th Notebook, § 17

When the public became aware of the economic crisis through the collapse of some of the big banks in the Fall of 2008, it took a while before the left and social movements took up the challenge of posing fundamental questions, of shifting “the further development of the life of the state” (Gramsci). Neoliberalism’s legitimation was undermined; still, the question of whether capitalism itself was in crisis was more typically discussed in bourgeois Sunday supplements than in influential groundbreaking strategy papers of the left and social movements.

The left was caught by surprise by the scale of the crisis, and its initial silence shows that analyses, policies and politics were hardly conceived in such a way that its own concepts could become practicable [=wirklich] (or even germane).

Left critique was strong where it addressed the manifestations of the crisis of the neoliberal model of politics and socialization, and stood on the side of the excluded and the surplus population [der Überflüssigen]. There was a lively and forceful critique of the social costs of neoliberalism. In 2003, a (fragile) anti-neoliberal bloc could be organized, in which left wings of trade-unions, anti-Hartz IV protests, the global-justice movement, critical intellectuals and the party Die LINKE formulated – despite all the differences between them – a critique of neoliberalism with a common direction.

Other struggles were carried out in a rather isolated way, for example the defensive battles against pensions at the age of 67 – and these hardly resulted in broadly shared concepts. Debates on societal alternatives (such as unconditional basic income, global social rights or solidarity economy) had limited public exposure, and they hardly resulted in broadly shared concepts. Added to this is the lack of worked out alternatives for the political regulation of high-tech modes of production. The relative weakness of the alternative concepts was, and is, to an important extent part of the “passive consensus around the hegemony” of neoliberalism, even if this has become more porous.

None of the protagonists and spectrums of the social left can at present credibly represent this project alone; a common grammar of struggles has still to be developed. The challenge of building an alliance and of debates around a project of a plural social left overlap.

In 2009, two parallel alliances, formed out of trade-union lefts, the party Die LINKE,  trade-union structures and anti-capitalist groups, organized the March 28 demonstration in Frankfurt am Main and Berlin, in which about 50,000 people took part.

The slogan “we won’t pay for your crisis” is an attempt – in the face of the general call for “common responsibility” for rescuing the banks – to name various interests as well as those who are politically responsible and those who profit economically [from the crisis]. Taxation of large assets, the reining in of financial markets, the drying up of tax oases [tax shelters], the rescinding of Agenda 2010 and of pensions at 67, and that the crisis not be dealt with at the cost of the South, are, among other demands, positions around which people can unite.

In the case of some concrete demands, there are often roadblocks: Some concrete demands – for example, from the spectrum of social protests and of the trade-union left, the demand for an immediate 500 euros ALG 2 standard rate [Unemployment Compensation II (“Hartz IV”)], for a 30-hour work week with full wage and personnel compensation as well as for a 10 euro minimum wage – contradict motions passed by union leadership bodies or don’t reflect the interests and mobilizing issues of the core work teams. Many employees in the automobile part supply sector, for example, know that work-time reduction with full compensatory wage increases would lead, on the level of a single company, to quicker bankruptcies and to unemployment, and they reject this demand. In this sense, it would be necessary to absorb into the demands forms of social or state mediation such as the redistribution of work, state equalization funds and offensively to take up radical work-time reduction as a society-wide concept. The demands “500 – 30 – 10” are the result of struggles and agreements of diverse spectrums in the movement against the Hartz reforms, but these movements in the last analysis remain weak. They express an agreement between jobless and social-protest initiatives and a part of the trade-union left against the division fostered between the jobless and the employed by neoliberalism’s low-wage and workfare policy. In the context of the crisis, this concern is very real; however, the defensive forms coming out of perspectives that cut across the boundaries between groups, recall lost struggles of the past.

Only to a limited extent are the positions connected of different spectrums connected to each other. Seldom are the perspectives of other spectrums recognized as concrete concerns; rather they are understood as reflecting institutional power. The more concretely the demands are formulated the greater seems to be the danger that the spectrums will move away from each other. At the same time, the retraction of concrete positions represents a possible breaking point, if, for example, social protest initiatives see their concrete demands as being tied to the acknowledgement of “their” life realities. Out of the struggles around Agenda 2010 the experience still shows that abstract demands have no prospect of being realized and of bringing about concrete improvements – and that is consciously taken into account by the “bigger” protagonists, like the trade-unions. The mistrust of the party Die LINKE and of the trade-unions is profound. The fact, for example, that the party, even before a demonstration, takes over the demands as their own is hardly seen as a success for the movement. In this, the contradictions of the relations of forces becomes evident. The dynamics of alliance formation are (still) not characterized by strong social struggles with “vital” demands which drive and inspire processes of agreeing upon a common project. As a result of the relative marginality of individual movement forces (such as the movement of the unemployed), the decisive strategic questions, which are posed in the organization of jobless and “poor,” are in danger of disappearing from the field of vision, questions such as: How are the splits between the various groups of the “precariat” (casual and temp workers) to be overcome? How are solidaristic alliances possible between the precariat and the middle strata who are threatened by downward mobility?

The trade-union leaderships kept their distance and mobilized for their own day of demonstrations on May 16, 2009. The demonstrations on the European Trade-Union Day themselves were, as an after-effect of the March 28 demonstrations, clearly characterized at the rank-and-file level by left statements, and they pushed the unions toward a more intensive mobilization. The education strike by students in June attracted broad public attention. Many organizers and participants saw this activity within the context of a critique of the way the crisis is being handled and of neoliberal (educational) policy. In an action known as the “bank hold-up,” large groups visited banks and drew connections between the bail-out of the banks and the financialization of study and education.

Despite the success of the mobilizations, it became apparent that diverse strategic assessments were blocking the development of the further capacity to act together. The fact that the March and May demonstrations were not followed by mass protests, sowed the seeds of resignation among some activists. In part social unrest, protest and movement are expected “if the crisis really reaches people,” that is, if, after the national elections, the cushioning policies reach their limits. The expectation that “then it will explode” is very minimally mediated in terms of the political and cultural relations of forces, and this kind of Adventism leads to abstinence from politics. In the best case, this attitude leads to political engagement for the strengthening of local alliances and for the construction of cooperation that can then be activated “in case of emergency.” Within the alliances (except in regional and local associations, which are closer to the trade-union left), the unions hardly appear as primary protagonists capable of mobilization. In the context of the crisis, they emphasize corporatist solutions. In the mostly plant-level attempts to rescue “what can be rescued” through concessions, no social-political offensive is emerging, and even jobs and work conditions cannot be secured in the middle term through such methods (see Urban 2009, p. 72 f; Riexinger 2009). Renewal efforts, alliances with social movements and an orientation to offensive wage struggles, which could compensate the loss in real wages of recent years, are in danger of being pushed to the background.

In this, the unions are in part strengthening their alignment with the SPD and orienting themselves toward the goal of negotiating concessions in the case of a Grand Coalition – they have little to expect from Die LINKE after the election except for its sharing the same struggle. What works against this is involvement in crisis management: The so-called “car-scrappage scheme,” crisis packages and reduced working hours are parts of a “national competitive-position-based crisis management” with which the government is trying to maintain social stability. Fierce internal confrontations around the demonstrations of March 28 and May 16, 2009 have shown that these orientations are objects of contention within the unions. Through the project of a new public deal, that is, of a reining in of privatization and the market by the enlargement of the public sector and of social infrastructure, common perspectives of Ver.di, social movements and other parts of the social left are thinkable (Riexinger 2009). Another “entry-project” of a plural “mosaic left” within an offensive strategy for dealing with the crisis could be tying discussions of securing jobs with work-time reduction, ecological conversion, cost-free mobility infrastructure, conversion of key sectors into public property and new forms of economic democracy (Urban 2009).

In order for these diverse fragments of the protest movements to find their way to being a “mosaic,” they need a process of communication and agreement over shared goals, or at least a common strategic perspective of how diverse but not antithetical goals can be linked together. In order to present something that can compete in the debate with liberal – and right-wing – populism, it is necessary to connect popular-democratic positions to a critique of capitalism and to egalitarian-solidaristic forms that includes global dimensions.

Focusing on Rosa Luxemburg’s concept of “revolutionary Realpolitik” – which, however, due to the very different social situation of today’s politics can if needed be conceived instead as “radical Realpolitik” – could be a contested area of agreement for linking the diverse initiatives of strategic center – left alliances to socialist “entry projects.”

Literature:

Riexinger, Bernd, 2009: Perspektiven des Protestes. Wie weiter nach den Demonstrationen in Frankfurt und Berlin?, in: Sozialismus, H. 7/ 2009,

Urban, Hans-Jürgen, 2009: Die Mosaik-Linke. Vom Aufbruch der Gewerkschaften zur Erneuerung der Bewegung, in: Blätter f. dt. u. intern. Politik, H. 5, 2009, 71-8

 The Dominance of the Financial

Sector has Become a Mortal Danger

By Robert Creamer
Huffington Post

Over the last several decades, the financial sector has grown relentlessly. It has doubled in size over the last 14 years. During the period 1973 to 1985 the financial sector never earned more than 16% of domestic profits. This decade, it has averaged 41% of all the profits earned by businesses in the U.S. In 1947 the financial sector represented only 2.5% of our gross domestic product. In 2006 it had risen to 8%. In other words, of every 12.5 dollars earned in the United States, one goes to the financial sector, much of which, let us recall, produces nothing.

That growth has not been among community or regional banks -- or credit unions. I'm talking about Wall Street.

Wall Street's growth is one big reason that most of America's economic growth during the last decade has flowed into the hands of investment bankers, stock traders and partners in firms like Goldman Sachs. The Center on Budget and Policy Priorities reports that fully two-thirds of all income gains during the last economic expansion (2002 to 2007) flowed to the top 1% of the population. And that, in turn, is one of the chief reasons why the median income for ordinary Americans actually dropped by $2,197 per year since 2000.

No surprise then that disproportionate numbers of the "best and brightest" graduates of our finest universities headed off to Wall Street. After all, that's where if you are very clever you can make tens of millions of dollars before you are thirty - mostly producing nothing.

By 2007 the top 50 hedge and private equity fund managers averaged $588 million in annual compensation each - more than 19,000 times as much as the average U.S. worker. And by the way, the hedge fund managers paid a tax rate on their incomes of only 15% -- far lower than the rates paid by their secretaries.

This huge wealth transfer from the "real" economy to the world of finance has also created a vicious cycle of increased credit dependency. If your family's real income isn't going up, but costs are, you try to borrow to stay afloat. That is one reason why private debt now equals 350% of the Gross Domestic Product - the highest ever. The more debt that consumers owe to the shrinking number of big financial institutions, the greater the share of their shrinking or stagnant incomes that is siphoned off to the finance sector - and the cycle just gets worse. And when the disposable income of ordinary Americans shrinks, they don't have the money to buy the new products and services that will fuel long term economic growth in the real economy.

Something is very wrong in this picture.

In fact, as last year's financial collapse make ever so clear, the increasing dominance of the financial sector - and its deregulation -- has become a mortal danger to our economic security. The financial sector - including the big insurance companies - has morphed into a cancer growing on our economy - a cancer that could easily strangle our prospects for our long-term economic security.

Later this week, Congress begins consideration of a package of measures that would serve as a first step in re-regulating and hopefully shrinking the American financial industry. This battle has not attracted as much attention as the critical fight over health care, but it is just as important for the well-being of everyday Americans.

The "best and brightest" from Wall Street would like to make the issues involved in this debate look complex and technical - beyond the understanding of ordinary mortals. But there are a couple of clear principles to remember as the debate unfolds:

1). History has shown that financial markets cannot accomplish their ostensible goal of allocating risk and directing capital to their highest and best uses unless they function within the context of very strict rules. That is so because speculators have a natural tendency to create products and systems that allow them to engage in reckless excesses that cause the entire system to lurch from bubble to bubble, collapse to collapse. This is not a theoretical argument. History proves the case beyond a reasonable doubt.

In 1792 the newly-minted United States suffered its first credit crisis. Another credit crisis followed about once every fifteen years until 1932. Then, the mother of all credit crises caused the Great Depression that in turn spawned the Securities and Exchange Commission (SEC) to regulate the stock market, the Federal Deposit Insurance Corporation (FDIC) to guarantee deposits in banks, and the Glass-Steagall Act that prevented banks from engaging in other forms of more risky financial activity.

For the next 50 years, those regulations--coupled with a wise use of Keynesian economic policies -- prevented another financial crisis. That is one of the reasons why America's experienced an unprecedented era of economic growth for every sector of the population - and a massive reduction in the inequality of income distribution.

But in the 1980's the Reagan "revolution" worked its de-regulatory magic on the Savings and Loan industry. It didn't take long for many of these once-stable institutions to collapse and cause the first credit crisis in a half-century. That should have given the country fair warning, but a few years later Wall Street convinced Congress to repeal the Glass-Steagall Act, and it prevented the regulation of newly-exploding "financial products" like "derivatives" that were basically bets on the movement of underlying investments like stock and bonds. Wouldn't want to "discourage financial innovation," they said. The growing predominance of private equity financing also took more and more financial transactions from the light of transparent regulated public markets into the de-regulated shadows.

Then there was the securitization of debt. Banks and other lenders bundled mortgages and other loans into packages and then chopped the packages into units that could be sold on secondary financial markets. These new markets made a lot more money available for loans, but there was no provision made for the inherent dangers. For years previous, bankers made loans with the realization that they were on the hook if they went bad. The new secondary markets allowed them to make the loans, and sell off the risk to a diffuse "market" that left them free of any risk.

All the while, the size of the financial sector was fed by the growing use of credit cards that could legally siphon off huge streams of revenue from ordinary Americans into the hands of bankers. And the elimination of usury laws encouraged the development of the "payday loan" industry that allowed someone to borrow $500 and pay $2,000 of interest on the loan over the next two years.

The result of all of these trends has been massive consolidation of power by a few major financial institutions that have ranged far afield from banking into highly speculative activities of all sorts. Brokerage firms like Goldman Sachs and banks like CitiBank have become indistinguishable. Massive portions of the credit market now exist outside of the oversight of any regulator.

Today, 45% of the banking market in the U.S. is dominated by Bank of America and CitiBank.

Finally, of course, huge remuneration packages were paid to clever Ivy League graduates who could make billions in speculative profit, even if they did so by taking Godzilla-sized risks. Remuneration systems paid them on the basis of short-term gain and they suffered no financial penalty for long-term pain. So they were "off to the races."

2). Much of the financial sector does not produce anything. The principal missions of the financial sector are to take on risk and allocate captial effectively. Some of the industry - especially community and regional banks - do just that. But in the last year the financial sector as a whole didn't "take on risk," it shifted risk to ordinary Americans through gigantic taxpayer bailouts. And often the Wall Streeters themselves escaped the recent economic debacle, having salted away hundreds of billions of dollars.

Fundamentally the financial sector is made up of middlemen, who spend their time creating schemes that allow them to funnel society's money through their bank accounts so they can take a sliver of every dollar off of the top.

Right now, the private health insurance industry is busy trying to defend its turf against a public health insurance option. It wants to maintain its "right" to take that tribute off the top of as many health care dollars as possible. Remember, the private health insurance industry doesn't deliver any actual health care.

The same is true of most of the financial sector. It is the farmers, manufacturing firms, the health care providers, the transportation companies, the guys who sweep up buildings, the cops and firefighters, the people who teach our kids - those are the people who produce the goods and services that we consume in our economy.

Most "innovative financial products" like derivatives are nothing more than schemes that allow speculators to build up paper wealth that will fuel the next credit bubble. Creating mechanisms to allow speculators to bet on the direction of stock prices or other actual investments doesn't do any more for the underlying economy than allowing the same people to bet on horse races.

Most Wall Street speculators don't contribute any more to our common well being than professional gamblers - which is pretty much what they are. Gaming in Las Vegas has fine entertainment value, but providing a gigantic worldwide casino for the rich is not an economically vital core function for the world's financial markets.

I'm not arguing against using financial markets to allocate capital and risk. Banks, stock markets and other financial institutions can be - and have historically been - important and efficient means of accomplishing these goals. But not when the tail begins to wag the dog. Not when the financial sector, which can be useful at serving the needs of the productive sectors of the economy, comes to dominate the economy.

After all, if so much wealth flows from the productive sectors of the economy into the fundamentally unproductive financial sector, ordinary people don't have enough money to buy the products that drive economic growth in the real economy.

3). Left to their own devices, financial speculators often kill off productive enterprises through leveraged buyouts and private equity plays. A case in point was highlighted last week by the New York Times. Simmons Bedding has been in business producing high quality mattresses for almost 133 years. Now it's about to file for bankruptcy protection - but not because it isn't a viable successful business.

Simmons has been milked dry by a succession of buyers and Wall Street investment banks that have made millions through leveraged buyouts that made good financial sense for Wall Street, but left the manufacturing firm deeper and deeper in debt. The Times reports that "the financiers borrowed more and more money to pay ever-higher prices for the company, enabling each previous owner to cash out profitably."

Simmons now owes $1.3 billion compared with $164 million in 1991. According to the Times, "In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the sub-prime mortgage boom. Fueled by easy money... these private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then not long after, they often borrowed even more money, using the company's assets as collateral."

"The result: THL (the private equity firm) was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth." Too bad for Noble Rodgers, an employee of 22 years, who along with 1,000 others have been laid off. Too bad for the American manufacturing base. The investment bankers got theirs.

4). The bigger the financial sector gets, the more power it has to hold the entire economy ransom for huge bailouts when their speculative bubbles collapse. Firms that are allowed to grow as large as AIG, CitiBank and Bank of America create "systemic" risk that threatens the world financial system.

The bottom line is that if a financial institution is too big to fail, it's just too big, period.

The new regulatory proposals now pending before Congress are critical first steps in reining in the power of the financial sector. The proposed Consumer Financial Protection Agency is especially important. It would end the anything-goes "Dodge City" mentality that allows consumers to have their pockets picked by financial "products" like teaser-rate mortgages with prepayment penalties that guarantee the consumer pays more than meets the eye. It will require tight regulation of credit card interest rates and fees.

But equally critical are tough new regulations of the entire financial sector - including the "derivatives" and "credit-default-swap" markets - and private equity, as well as regulations to eliminate remuneration systems that incentivize recklessness, and requirements that mortgage originators maintain a stake in the loans they sell. The "resolution" authority proposed by the Obama Administration is also an important step to assure that there is an orderly way to close even the largest of financial institutions.

Serious regulation will inevitably cut back on the flow of income from normal people to the financial sector as a whole. But over time, our goal needs to be to restore dominance of the economy to the productive sectors of economic endeavor, and to break up the financial and insurance cartels that have a stranglehold on our future.

That will not happen without a monumental struggle. The Obama Administration's proposals for financial re-regulation are the first offensive on this critical front in the war for our long-term economic security.

[Robert Creamer is a long time political organizer and strategist, and author of the recent book: Stand Up Straight: How Progressives Can Win, available on Amazon.com. ]

Read more at: http://www.huffingtonpost.com/robert-creamer/the-dominance-of-the-fina_b_317310.html

Graphic: Ptolemy, the Earth Centric

Team Obama's Flawed Cosmology:

A Universe Revolving Around Banks

By Arianna Huffington
Huffington Post

A series of recent meetings with members of Barack Obama's economic team (including running into Larry Summers on my way to an appointment in the West Wing, leading to a spirited back-and-forth that made me feel like I was back at Cambridge, debating the smartest kid in the class), left me with a pair of indelible impressions:

1) These are all good people, many of them brilliant, working incredibly hard with the best of intentions to solve the country's financial crisis.

2) They are operating on the basis of an outdated cosmology that places banks at the center of the economic universe.

Talking about our financial crisis with them is like beaming back to the 2nd century and discussing astronomy with Ptolemy. Just as Ptolemy was convinced we live in a geocentric universe -- and made the math work to "prove" his flawed theories -- Obama's senior economic team is convinced we live in a bank-centric universe, and keeps offering its versions of "epicycles" and "eccentric circles" to rationalize their approach to the bailout. And because, like Ptolemy, they are really smart, they are really good at rationalizing.

It's easy to get lost debating the complexity of each new iteration of each new bailout, but the devil here is not in the details -- but in the obsolete cosmology.

If you believe the universe is revolving around the earth -- when, in fact, it isn't -- all the good intentions in the world, and all the endless nights spent coming up with plans like Tim Geithner's Public-Private Investment Program will be for naught.

The successive bailout plans have been frustrating to many observers (yours truly included), but when you realize how fully the economic team is mired in a bank-centric universe, all the moves suddenly make perfect sense.

Here is one example. Everybody agrees on the paramount importance of freeing up credit for individuals and businesses. In a bank-centric universe, the solution was a bailout plan giving hundreds of billions to banks. It failed because, instead of using the money to make loans, the banks "are keeping it in the bank because their balance sheets had gotten so bad," as the president himself acknowledged on Jay Leno. As a result, the administration, again according to the president, had to "set up a securitized market for student loans and auto loans outside of the banking system" in order to "get credit flowing again."

But think of all the time we wasted while the first scheme predictably failed. And how much better off we'd now be if we had provided credit directly through credit unions or small healthy community banks or, as happened during the Depression, through a new entity like the Reconstruction Finance Corporation.

Luckily, there is a plethora of economic Galileos out there who recognize that the old bank-centric cosmology is just plain wrong. But while Joseph Stiglitz, Simon Johnson, Jeffrey Sachs, Nassim Taleb, Niall Ferguson, Paul Krugman, etc. are not being imprisoned for life for their heretical views -- they are also not being listened to. Which is really surprising for an administration that has prided itself on a "team of rivals" approach.

Worse, as the fundamental flaw in the administration's cosmology becomes more and more evident, the economic team around the president is closing ranks. Even David Axelrod, once the administration's champion of a more skeptical view of a bank-centric universe, appears to be peering through the Geithner-Summers telescope.

Back in February, he crossed swords with Geithner, arguing for executive pay caps. But there he was on Sunday, whiffing on a pro-populist softball offered up by Fox News' Chris Wallace, who asked: "When taxpayers are putting up most of the money and taking more of the risk, why would the Obama administration allow some of these executives to get even richer?"

Axelrod's answer? "On some of these programs, we're asking financial companies to come in and help solve this problem by providing more lending, by buying up toxic assets and so on. We don't want to create disincentives and undermine the program."

"Asking" them? Aren't we, in fact, bribing them with massive capital infusions and loan guarantees? That's what being surrounded by a group of modern day Ptolemys will do to a person.

Of course, it's less of a surprise that Geithner and Summers believe in bank-centrism -- they're both creatures of it. Which is why it wasn't a shock when it was reported this weekend that Summers had received $5.2 million for advising a hedge fund last year, or that he received hundreds of thousands of dollars in speaking fees from some of the very banks -- including J.P. Morgan, Citigroup, and Goldman Sachs -- that have been on the receiving end of billions in taxpayers money. Billions that have come with very few strings attached -- and almost no transparency.

I am in no way suggesting there is anything corrupt about this or any quid pro quo involved. It's just that in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail banks is the logical thing to do.

So is arguing that the banking crisis is just a liquidity problem rather than an insolvency one, as Geithner continues to do (and if the stress tests come back declaring Citi solvent, it will be high time to start stress testing the stress testers).

In a bank-centric universe, it's also no surprise that "mark-to-market" accounting rules, in which banks have to calculate and report their assets based on what those assets are actually worth, instead of what they'd like them to be worth, are being abandoned. A good name for the reworked accounting standards would be mark-to-fantasy, because that's basically what balance sheets will be under these new rules. Of course, to a true believer in bank-centrism, the problem with mark-to-market is that it's not good for the banks. It's the accounting equivalent of Galileo's telescope.

Last week at the G-20 meeting, Gordon Brown proclaimed that "the old Washington consensus is over." But when it comes to attacking the financial crisis, the zombie Wall Street/Washington consensus that has everything in America orbiting around the banks is still the order of the day.

The longer bank-centrism is the dominant cosmology in the Obama administration -- and the longer it takes to switch to a plan that reflects a cosmology in which the American people are the center of the universe and are deemed too-big-to-fail -- the greater the risk that the economic crisis will be more prolonged than necessary. And the greater the suffering the crisis will continue to cause.

There is an enormous human cost to this bank-centric dogma. Unemployment, already at levels not seen since 1983, is skyrocketing. In many places in the country, it's approaching 20 percent (and in Detroit it's 22 percent).

Writing about the "grand book" that is the universe, Galileo declared that it "cannot be understood unless one first learns to comprehend the language and interpret the characters in which it is written... without these, one is wandering about in a dark labyrinth."

That's where we find ourselves today, wandering about in a dark financial labyrinth -- being led by good men blinded by an obsolete view of the world.

President Obama needs to open his inner economic circle to those untethered to this flawed way of thinking and acknowledge that navigating our economic crisis using maps based on a cosmology that places banks at the center of the universe can only lead to our being lost at sea for years to come.

DVD promo image above: Still of title from Richard Wolfe video. Use link below to view the entire one hour lecture in a Preview Mode. 

Capitalism Hits the Fan

What To Do When

the Bailout Fails

By David Schweickart

Tikkun Magazine

May 1, 2009

Dear President Obama,

We have never met, although we are neighbors of sorts. I live a couple of blocks from your Hyde Park home. We vote at the same polling place, Beulah Shoesmith Elementary School.

My daughter Karen has met you. She took two classes from you when she was in law school at the University of Chicago. My granddaughter Lauryn has met you, too-although she doesn't remember the occasion. Karen brought her to class one day, shortly after her birth. Karen and Lauryn both attended your inauguration, ticketless but with much enthusiasm. I wasn't there, but I share their enthusiasm.

Which is why I am writing you this letter. You have somehow, against all odds, become president. You are in position to do things that few others on this planet are in position to do.

This is not a letter you'll want to show to your economic advisers anytime soon, certainly not to Paul Volcker or Robert Rubin or Larry Summers. They would find it crazy and/or hopelessly utopian, probably both. But if the policies they propose are implemented yet fail-as I fear they will-you might want to think about some of the things I'll be saying here. I'm proposing, if you will, a backup plan.

The Real Cause of the Present Crisis

First, let me explain to you why I think your stimulus package will fail, why the problem may be worse than even your most pessimistic advisers think.

It is important to grasp the real cause of the present crisis. It is not the subprime lending, nor the housing bubble. It is not Wall Street greed, nor the investment managers' feckless "innovations," nor even the reckless borrowing that has characterized almost all sectors of the economy. These factors have all played a role, but they are at best proximate causes.

Let me start with a picture, cribbed from a lecture by University of Massachusetts Amherst economist Rick Wolff-a Marxist. (I warned you about showing this to your advisers).

What we have here is a (simplified) graph showing a steady growth of output per worker in the U.S. economy since World War II, due to ever-increasing productivity. The corresponding wage trajectory, you will note, rose in tandem with output until the mid-1970s, then went flat. That first period, 1945-75, is sometimes referred to as capitalism's "Golden Age." As Paul Krugman noted in The Conscience of a Liberal:

Postwar America was, above all, a middle-class society. The great boom in wages that began with World War II had lifted tens of millions of Americans-my parents among them-from urban slums and rural poverty to a life of home ownership and unprecedented comfort. The rich, on the other hand, had lost ground. They were few in number and, relative to the prosperous middle, not all that rich. The poor were more numerous than the rich, but they were still a relatively small minority. As a result, there was a striking sense of economic commonality: Most people in America lived recognizably similar and remarkably decent material lives.

This, you will recall, was the heyday of "Keynesian liberalism," or, if you prefer, social democracy. Marx had been proven wrong. Workers were not consigned to increasing immiseration. They shared in the productivity growth that capitalist innovation produced (from publicly funded research, as well as private investment). But this "social democratic contract" expired in the mid-1970s. Please note, in the mid-1970s, not in 1980 with Ronald Reagan, but well before that. Why? I'll get to that later. First let's think about the consequences.

At first glance, it would seem that we should have gone back to what Marx predicted-a classic crisis of overproduction. With wages held down, who was going to buy the ever-increasing number of goods being produced? To be sure, we did get a nasty twenty-month recession beginning in 1980-"the most severe downturn since the Great Depression," as it was then described-when Paul Volcker, then Fed Chief, tightened the money supply. But this was a deliberate policy move, designed to "slay the dragon of inflation." Which it did. We came out of it during Reagan's first term; the economy began growing again, and, apart from some fairly minor interruptions, it kept on growing-until a year ago.

But how was that possible? With wages flat, who was buying the products? Well, as you know, the rich got very much richer in those days, creating a separate country (designated "Richistan" by Wall Street Journal columnist Robert Frank), chock-full of McMansions, multimillion-dollar yachts, private jets, etc. (Over the past thirty years the average annual salary in America has increased only 10 percent, whereas the real annual compensation of the top 100 CEOs has increased 3,000 percent.) But those expenditures weren't nearly enough to keep the economy on track. Ordinary people had to keep buying also, more and more. How? You know the answer to that question. We all do. By borrowing. Credit card debt has increased sevenfold (adjusted for inflation) since 1975, home equity loans have mushroomed, students have gone deeper into debt, and automobile loans have rocketed upward. All in all, outstanding household debt mushroomed from 47 percent of GDP in 1975 to 100 percent of GDP thirty years later.

Marx would probably have smiled, saying: "How clever those capitalists think they are. Instead of keeping up spending by raising wages (which I hadn't counted on them doing), they decided to loan the money to the working class instead. Much better, since they can collect interest on those loans. But, of course, they neglected one small fact. When it becomes clear that these debts are never going to be repaid, lending will stop. That big crisis I predicted ... well, hang on, folks, here it comes."

It was a long time coming, longer than one might have expected. Lots of money was made during the credit boom-more than could be loaned out again to the "real" economy-so it flowed into the stock market, setting off a bubble there, and then, later, into real estate. (The Dow Jones doubled during the Golden Age from 500 in 1956 to 1,000 in 1972, during which time wages doubled also. It increased fourteenfold during the ensuing flat-wage period, hitting 14,000 in 2007.) People felt richer, so they spent more and were able to borrow more against ever-rising asset values.

But what can't go on, doesn't. Credit lines max out, especially when compound interest and falling asset values kick in.

A Keynesian Remedy?

OK, we're in a bind. How do we get out? Your economic advisers call for a return to Keynesianism. Monetary stimulus: get the Fed to cut interest rates and get money to those banks that are in trouble. Fiscal stimulus: unbalance the budget (which was already badly unbalanced, but take no heed), cut taxes, and engage in direct job creation. Surely these are moves in the right direction. Don't be timid. You should take Paul Krugman's advice: you need to be bolder than FDR ever was. (You should be reading everything Krugman writes-which you probably are-and acting accordingly). Let's get universal health care while we're at it. With so many people in distress, the time could hardly be more right.

Maybe this will work. Honestly, I hope it does. But, as you know, Keynesianism has been tried before, with mixed results. We're all looking back to the Great Depression these days, and the New Deal that saved the day. Except it didn't. It wasn't FDR's job creation programs, noble though they were, that pulled us out of the last Great Depression. Unemployment was at 3 percent in 1929. It had jumped to 25 percent when the New Deal began-but was still at 17 percent in 1939. It took World War II to pull us out: that vast mobilization of millions of men to fight abroad and the mobilization of many millions more to supply them with the wherewithal to do so.

It's hardly bad news that there's not going to be World War III. The technologies are far too destructive for even the most insane neocon to advocate war with China. Thanks to our twin debacles in Afghanistan and Iraq, no one has illusions anymore about our military omnipotence. As it is, we are spending more on our military than all the other countries of the world combined spend on their militaries. Massive Cold War defense spending long after World War II was over was certainly a factor in keeping the Golden Age golden, but there's not much room left now, if any, for expanding military Keynesianism.

Keynesianism came to grief in the 1970s. Unions had become strong, and the government was committed to economic stimulus whenever unemployment worsened. But if productivity doesn't increase fast enough, then those union-negotiated wage increases and the additional government spending create inflation, not growth. We got stagflation, remember, which made everyone unhappy, including the workers themselves, who saw their gains nullified. So the stage was set for a war against inflation (initiated by Mr. Volcker) that caused unemployment to shoot up to 10 percent, making labor more docile than it had been in decades. Employers went on the offensive against the unions, relocating plants to the non-union Sunbelt, and then, as deregulated globalization took hold, to anywhere else they wanted. (Why did wages flatline? The short answer involves a one-two-three punch: inflation, fierce recession, and globalization.)

If I'm right-that ultimately it is too-low wages that are the problem-well, how are your programs going to fix that? We can't raise wages, can we? Companies will just move abroad. It is that threat-by no means idle-that has kept those wages flat for so long. Yes, by all means make it easier for working people to join unions. By all means let's have worker free choice. That will help some. But as the concessions just wrung out of the UAW so that their companies could get bailout money make clear, union bargaining power is but a shadow of what it once was.

Environmental Crisis

Let me throw one more grim consideration into the mix. Suppose I'm wrong. Suppose we do get the economy growing again-and are able to keep it growing. That will bring us face to face with a crisis of a different sort, a crisis based on the very fact of relentless, limitless growth: the environmental crisis. This one is real in a more profound sense than our current economic crisis, in that it has a material basis, as opposed to a "merely" structural one. We are running down our supply of fossil fuels, depleting our fisheries and forests, pouring too much carbon dioxide into the atmosphere, using way too much fresh water, etc. Sure, your advisers will tell you that we can "grow" our way out of this crisis by investing in green technologies, better insulating our homes and so on, but honestly, that's a fairy tale. You know that, don't you? To be sure, these things are important. They help. But it should be obvious that a long-term solution requires shifting our economy to one that does not depend for its health on ever-increasing consumption-a consumption that doesn't make us happier anyway.

Let's be clear: the fundamental problem isn't the consumer. If consumers were just naturally voracious, our businesses wouldn't have to spend $300 billion or so every year trying to persuade us to buy what we might not otherwise realize we "need." (Firms try to persuade us to buy X rather than Y, not goods in general, but the net effect is relentless, ubiquitous propagandizing on behalf of consumption.) The persuasion works-most of the time. As the present crisis makes crystal clear, when consumers cut back their spending, the economy nose-dives-and everyone suffers. Clearly, the ecological crisis is not so much about consumption as it is about our mode of production. It would be very hard to solve it by voluntary simplicity alone, when the whole economy is built on pushing products with sophisticated propaganda.

So we are in a tight corner. Those concerned about rising unemployment urge us to spend, spend, spend, while the environmentalists scream back that our consumption-addiction is killing the planet. And both sides are right. Moreover, both sides really want the same thing: a healthy, stable, full-employment economy that treads lightly enough on our fragile planet to be sustainable. It's what we all want, isn't it?

A Democratic Alternative to Capitalist Craziness

Here's where I make my pitch. A stable, sustainable, full-employment economy is possible. Its institutions are imaginable. It would be democratic and efficient. It would embrace market competition. There would be a place in it for entrepreneurial capitalists and for a small business sector like the one we already have. In fact, it wouldn't look too different from what our economy looks like today-and yet it would be very different.

This is something I've been thinking, speaking, and writing about for my entire academic life. Let me sketch briefly the basic institutions of what I call "economic democracy." (It is a form of socialism, but we might not want to use that word-not that it wouldn't be immediately branded as such by opponents terrified that, on its own merits, it might look too good to too many people.)

Workplace Democracy

Let's imagine a world in which most large enterprises are run democratically. They are communities-not properties to be bought or sold or "relocated" to lower-wage parts of the country or globe. When you join a firm, you get to vote for representatives who will serve on a Workers Council that serves the same function that a Board of Directors (representing shareholders) serves in a modern corporation: selecting top management, setting the terms of employment, and approving major business decisions.

You have a vested interest in voting for competent representatives, who will appoint competent management, since your income is tied directly to the fate of the company. You don't receive a fixed salary. Your income is a share of the company's profits. (Shares aren't equal. They will vary according to whatever criteria the enterprise chooses, e.g., seniority, levels of responsibility, special skills, etc.) This gives you and every other worker in the enterprise a major incentive to work hard and effectively-and to monitor your co-workers to see that they do the same.

These enterprises compete for customers in a free market constrained only by familiar regulations that compensate for market externalities and protect consumers from deception and avoidable harm. These enterprises will exist alongside a public sector providing certain services, which will include health care and investment banks (see below) in addition to infrastructure, education, and security services.

Social Control of Investment

Enterprise governance is one key structural difference between economic democracy and capitalism. The other concerns finance, specifically the mechanisms that generate, then allocate, funds for new investment. The "free market" has proven itself inadequate to the task of performing this function efficiently-to put it mildly. (Can any economist these days use the term "efficient markets hypothesis" with a straight face?)

There are two parts to our reform. The first involves the source of funds. Let's break the connection between saving and investment. We won't rely anymore on private savings, which, apart from pension funds, come overwhelmingly from the wealthy. Relying on this segment of society makes the whole economy hostage to their "animal spirits"-to use Keynes's term. How much societal investment we need, where and in what enterprises these funds should be invested-these decisions are vital to the long-term future of everyone. They are too important to be left to the hunches and intuitions of a small segment of the population that is largely invisible and wholly unaccountable to the general public.

People can still save. We'll have Savings and Loan Associations in our economy, where modest interest is paid on deposits, which are insured by the federal government. These regulated S&Ls will serve as source for home mortgages and other consumer loans-as they once did, in pre-deregulation days.

Business loans, however, are another matter altogether. We'll raise all the funds for business investment publicly, the way we raise funds now for public investment-namely, from taxes. Let's abolish the corporate income tax (which few corporations pay anymore anyway), and substitute a capital assets tax-a flat-rate tax on the value of an enterprise's tangible property. As it is now, we tax labor, via the payroll tax, but not capital. (As all economists know, but few bother to mention, this distorts the efficient allocation of resources, making labor more expensive than it need be, thus giving incentives for automation and making production more capital-intensive than it ought to be.) This tax redresses the balance.

Under the new system, the revenues from this tax are kept separate from general tax revenues. All go into the "investment fund." All are plowed back into the economy, as loans to existing businesses wanting to expand production or upgrade their technologies, or to individuals wanting to start up new businesses. (Just as payroll taxes are specifically earmarked for social security payouts, the capital-assets taxes are specifically earmarked for business investment.)

Once collected, these investment funds are allocated to a network of regional and local banks, each region getting its per capita share. (Congress can readjust this allocation, but since the allocation is a zero-sum game, any deviation will need solid justification.) Every year, each region of the country gets its fair share of the national investment fund. Regions don't compete for capital. They don't have to offer tax breaks and other incentives to attract investors. Citizens don't have to pick up and move from capital-starved regions to those into which the capital is flowing. Capital flows automatically to where the people are. Community stability is thus greatly enhanced.

Enterprises within regions do compete for capital. The investment banks are public institutions. Loan officers are public officials charged with allocating society's resources efficiently. Profitability is a major criterion of success, although a community might want to add some others-employment creation, for example, or the fostering of green technologies. In any event, the allocation process is open and transparent because these banks are public institutions loaning out public money. Loan officers whose portfolios perform well will be rewarded; those whose portfolios do not may lose their jobs. Thus we have incentive structures in place appropriate to the efficient allocation of capital in accordance with democratically decided priorities.

These are the basic institutions of economic democracy: a competitive market for goods and services, widespread workplace democracy, and what I call "social control of investment."

There are a few supplementary policies that an economic democracy should also adopt; full employment, "capitalism within socialism," and socialist protectionism.

Full Employment

We need the government to serve as the employer of last resort. Every person wanting to work should have a job. No market economy, capitalist or socialist, can guarantee full employment. The government has to do that. Every citizen should enjoy a genuine "right to work." These jobs will not be high paying, but they should involve decent, socially useful work. Involuntary unemployment is a scourge, a deepening, terrifying global trend that must be addressed head on. (To be unable to find work is a terrible thing. It's as if society is saying, "There is nothing you can do that we need. We may deign to keep you alive, but make no mistake: you are a parasite, living off the labor of others." Is it any wonder that unemployment breeds social pathologies?)

Capitalism within Socialism

Economic democracy does not require that every business be democratically run. Small businesses need not be. Nor larger businesses either, no matter what their size, so long as the entrepreneurial founders are still actively involved. Economic democracy values entrepreneurial ability. Society as a whole profits from the exercise of such talents. If capitalist incentives are useful in fostering such abilities, they should be retained.

Our economy will feature an entrepreneurial capitalist sector. Anyone who wants to can start a business, hire as many workers as she wants, introduce as much or as little worker-participation and profit sharing as she sees fit. However, when the entrepreneur wants to retire or move on, and the business exceeds a certain size, she or he must sell the business to the state, which will then turn it over to its workers to be run democratically. The entrepreneurial capitalist sector thus serves as an important source of democratic firms. Such capitalists play a valuable role in our socialist economy and are duly honored therein.

Socialist Protectionism

One final policy: economic democracy values healthy competition-competition among producers to find out and produce what consumers really want, to use their resources efficiently, and to innovate. But not all forms of competition are healthy. Wage competition is not. We do not want workers competing with one another to see who will work for less. This is race-to-the-bottom competition. In particular, we do not want our enterprises competing with those enterprises in poor countries whose competitive advantage derives from the fact that their workers earn substantially less than ours do. For this reason we should adopt a policy of "socialist protectionism."

The protectionist part: we will charge a tariff on goods imported from poor countries to bring the selling price of the goods up to what they would be if labor costs in the exporting counties were comparable to our own. We are thus protecting our workers from "unhealthy" competition.

The socialist part: we rebate the tariff back to the country of origin. This money may go to the government if we deem it progressive enough, or to labor unions or NGOs working to upgrade working conditions there. In effect, our consumers are paying higher prices for their imported goods than the price the free market would set, and this difference is going to the poor country. That is to say, we believe in fair trade, not free trade.

Economic Democracy, Stability, Sustainability

Mr. President, I've provided only a bare sketch of an alternative economic order. I won't try to defend here the claim I defend elsewhere, namely that economic democracy is not only economically viable, but it would also be vastly more democratic and egalitarian than our current economic system. I do want to say a few words, though, about the crises I discussed in the first part of this letter.

The first conclusion we can draw is a large one: economic democracy is not vulnerable to the kind of economic crisis we are now experiencing. The basic reason is simple. There are no private financial markets in economic democracy. Markets for goods and services remain, but there are no stock markets, bond markets, hedge funds, or private "investment banks" concocting collateralized debt obligations, currency swaps, and the myriad other sorts of derivatives that preoccupy investment bankers today. Hence, there is no possibility of engaging in financial leveraging and other forms of speculative gambling.

In particular, the kind of housing bubble we've just experienced, fueled by the massive demand for mortgage-backed securities couldn't happen, for there are no such securities to buy or sell. Mortgages stay with the Savings and Loans of origin. To be sure, if the demand for homes should rise, individuals might gamble that prices will keep going up, and hence buy in order to resell-but the S&Ls are well positioned to scrutinize loan applications. An individual S&L might make some bad loans, perhaps so many as to force it into bankruptcy, but there is little danger of contagion.

It is interesting to note that Krugman, in spelling out his own plan for economic recovery projects, admits, "it will come close to full temporary nationalization of a significant part of the financial system"-though he is quick to add, "This isn't a long term goal, a matter of seizing the economy's commanding heights: finance should be reprivatized as soon as it is safe to do so." He doesn't say why the reprivatization is necessary. (Why not seize the economy's "commanding heights" and democratize them?) Clearly, he wants to reassure everyone that he is not a closet socialist-"for nothing could be worse than failing to do what is necessary out of fear that acting to save the financial system is somehow ‘socialism.'"

Immunity to speculation is not the only strength of economic democracy. Even more important: it is not vulnerable to that deep problem confronting every capitalist economy, which I discussed above, namely insufficient effective demand, due ultimately to the fact that wages are a cost of production. (It is rational for each capitalist to keep his workers' wages down, and yet the wages of working people constitute the major source of consumer demand. Ideally, a capitalist would like to keep the wages of his own workers down, while those of all other workers remain high-but he has control only over what he pays his own workers. Individual rationality leads to collective irrationality-a classic collective-action problem.)

Wages are not a cost of production in a democratic firm. Workers get a specified share of the firm's profit, not a wage-so all productivity gains are captured by the firm's workforce.

What about the environmental crises, which derive from the fact that a capitalist economy must constantly grow to remain healthy? I've argued that contemporary capitalism is in a bind. If the economy doesn't grow, we get an economic crisis; if it does, we get an ecological crisis.

Economic democracy is not so immune to environmental crises as it is to economic crises, but it is far better positioned than capitalism to achieve sustainability.

It is a fundamental fact about a democratic firm, long recognized in the theoretical literature, that it lacks the expansionary dynamic of a capitalist firm. The reason is structural. Democratic firms tend to maximize profit-per-worker, not total profits. That is to say, doubling the size of a capitalist firm will double the owners' profits, whereas doubling the size of a democratic firm leaves everyone's per-capita share the same. (Doubling the size of the firm means doubling the size of the workforce.) Thus, democratic firms are not incentivized to grow. Unless there are serious economies of scale involved, bigger is not better.

Moreover, since funds for investment in an economic democracy come from the capital assets tax, not from private investors, the economy as a whole is not hostage to "investor confidence." We need not worry that an economic slowdown will panic investors, provoking them to pull their money out of the financial markets, triggering a recession. For there aren't any financial markets. Economic democracy can be a healthy, sustainable, "no-growth" economy, whereas capitalism cannot be.

Labor, Leisure, Virtue

Actually, "no-growth" is a misnomer. Productivity increases under economic democracy will more likely translate into increased leisure than increased consumption. The economy will continue to experience "growth," but the growth will be mostly in free time, not consumption. So we might be able, at long last, to slow down, spend time with our family and friends, read books, listen to music, see the films we've long wanted to see. We might even find time to smell the flowers. Keynes himself mused about such a state of affairs, when thinking about our vastly increased productivity and its bearing on the "Economic Possibilities for Our Grandchildren":

We shall use the new-found bounty of nature quite differently than the way the rich use it today, and will map out for ourselves a plan of life quite otherwise than theirs.... What work there still remains to be done will be as widely shared as possible-three-hour shifts, or a fifteen-hour week.... There will also be great changes in our morals.... I see us free to return to some of the most sure and certain principles of religion and traditional virtue-that avarice is a vice, that the extraction of usury is a misdemeanor, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow.... We shall honor those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things.

Keynes wrote these words in 1930, at a time when "the prevailing world depression, the enormous anomaly of unemployment, the disastrous mistakes we have made, blind us to what is going on under the surface." He was wrong, of course. The "rentiers" have not suffered euthanasia, as he had thought they would. The grandchildren of his generation may have lived in a post-war social democracy that looks good to us, mired as we now are in an anxiety-laden, ever-deepening recession, but they were still far from the Promised Land.

Keynes was wrong-or was he? The essay's title notwithstanding, he was not referring literally to his grandchildren. His projection was for "a hundred years hence," i.e., 2030. Might he be right after all? Might there be things "going on under the surface" right now, to which we are blind, that could bring us to a sustainable, democratic, human world?

I'm thinking of my own granddaughter now. She's eight years old, right between Sasha and Malia. What kind of a world will she inherit? It'll be the same world your daughters will inherit.

I've sketched an "economic possibility." Will we move toward something like that? Your presidency will likely shape the future as few other presidencies ever have. The world is going to be very different eight years from now.

Many of your programs are pointing in the direction of that "promised land." You are creating jobs. How about a job for everyone? You are nationalizing banks. This could serve as an opportunity for radical restructuring. You are bailing out the auto industry and will doubtless be called upon to bail out other troubled businesses. You could begin insisting on some workplace democracy.

Who knows how all this will turn out? It is important to realize that there does exist a viable, desirable, sustainable alternative to the current system. It has become suddenly, tantalizingly, visible on the horizon. That gives me hope. It might give hope to many.

David Schweickart is Professor of Philosophy at Loyola University Chicago. He holds PhDs in mathematics and philosophy. His most recent book is After Capitalism (2002; Chinese translation 2005; revised edition forthcoming).

http://www.tikkun.org/article.php?story=may_jun_09_schweickart

Photo: Ontario's Algoma Steel, a 5000 worker cooperative

Coops and the global financial crisis

Cooperatives have been more resilient to the deepening global economic and jobs crisis than other sectors. ILO Online spoke with Hagen Henry, chief of the ILO’s Cooperatives Branch.

The ILO is the International Labor Organization, created in 1919, as part of the Treaty of Versailles that ended World War I, to reflect the belief that universal and lasting peace can be accomplished only if it is based on social justice. The ILO brings together governments, workers and employers, as the world's only tripartite multilateral agency. It is dedicated to bringing decent work and livelihoods, job-related security and better living standards to the people of both poor and rich countries.

ILO Online: Why does the ILO promote cooperatives?

Hagen Henry: The ILO views cooperatives as important in improving the living and working conditions of women and men globally as well as making essential infrastructure and services available even in areas neglected by the state and investor-driven enterprises. Moreover, values that are at the heart of the cooperative movement are central to creating decent jobs. Cooperatives are close to a democratic, people-centred economy which cares for the environment, while promoting economic growth, social justice and fair globalization. Cooperatives play an increasingly important role in balancing economic, social and environmental concerns as well as in contributing to poverty prevention and reduction.

ILO Online: What is the impact of the current global economic crisis on cooperatives?

Hagen Henry: Available information suggests that, with few exceptions, cooperative enterprises across all sectors and regions are relatively more resilient to the current market shocks than their capital-centred counterparts. However, as for other enterprise types, the situation of cooperatives with regard to the crisis varies with the degree of dependency on demand and external financing, the degree of their diversification and also with the sector. We just commissioned a study, which will provide us with further, more in-depth information.

ILO Online: Can you give us a concrete example?

Hagen Henry: At the peak of the crisis cooperative banks were faced with an increase in membership and savings deposits and found it difficult to respond to this sudden growth in demand. So far cooperative banks have not announced any significant losses due to this crisis. Nevertheless, losses incurred by the German central bank of cooperatives (DZ), itself a stock company, show how cooperative banks could put themselves at a financial risk. In this reported case, cooperative specific control mechanisms were either not in place or failed. However, most cooperative banks have lessened their vulnerability and increased transparency mainly by investing in their proximity and in the real economy. Ethiopian coffee growers seem to be less affected by world market fluctuations than coffee producers who are not part of cooperative specific value chains.

ILO Online: Cooperative banks are more resilient to the financial crisis?

Hagen Henry: No cooperative bank seems to have applied for state aid so far. As the German example shows, this may not be interpreted as them not having been impacted negatively by the crisis. But self-help mechanisms, like member liability to further call, inter-cooperative bank guarantees, or reserve liabilities are being used before applying for external support. Both in the US American credit union system and in the German cooperative banking system these mechanisms have prevented member customers from losing any money ever since the Great Depression was over. What’s more, bankruptcies of cooperatives due to the crisis have not been reported, nor have employee lay offs.

ILO Online: Do the financial crisis and the new perception of cooperatives represent an opportunity for the ILO and its constituents?

Hagen Henry: Cooperatives are not “just” another form of business, they are not enterprises “en miniature”, but a specific, value-based business model for all sizes and activities. Just to mention famous examples like KPMG, the London Philharmonic Orchestra, Best Western hotel chain, AP, which are all cooperatives. The crisis has led to a self interrogation about the right business model. Cooperatives are one interesting alternative model. They put a premium to longer term sustainability and profitability, to sharing benefits between their members who are the capital owners and the main users (lenders, borrowers); they factor in the needs of the local community, are highly transparent and – fundamentally - have a social agenda which does not prevent them from being sustainable and profitable at the same time.

ILO Online: What is the economic and social impact of cooperatives worldwide?

Hagen Henry: The top 300 cooperatives in the world in terms of turnover are of the size of the GDP of Canada. In Colombia, Saludcoop, a health co-operative, provides health care services for 15.5 per cent of the population. In Ethiopia, 900,000 people in the agriculture sector are estimated to generate part of their income through cooperatives. In France, 9 out of 10 farmers are members of agricultural co-operatives; co-operative banks handle 60 per cent of the total deposits and 25 per cent of all retailers in the country are co-operatives, while in Japan 9.1 million family farmers are members of cooperatives who provide 257,000 jobs. In India, the needs of 67 per cent of rural households are covered by cooperatives, and in Switzerland, the largest retailer and largest private employer is a cooperative.

ILO Online: How can the ILO support the promotion of cooperatives?

Hagen Henry: Policy makers must ensure that laws and administrative practices (registration procedures, taxation policies, accounting standards, capital standards for financial institutions as well as the ability to access funding, etc.) do not hinder the development and growth of cooperatives. Just to give an example of a highly complex problem we face: In some countries, women still need the permission of their husbands to join agricultural cooperatives. ILO Recommendation 193 on the Promotion of Cooperatives provides guidance on cooperative policy and legislation stressing the need for a level playing field for cooperatives and other enterprises. It also provides guidance on how to ensure that cooperatives are managed and audited according to their specific features and that education and training curricula include cooperatives.

Related stories

When men cry: Argentina’s factory takeovers http://www.pww.org/article/articleview/6753/

Farmer/labor coalition formed basis of U.S. coop movement http://www.pww.org/past-weeks-2000/DC%20rally%20call.htm

 David Harvey

Explores the

Logic of Capital

A Socialist Review Interview by Joseph Choonara, April 2009

Joseph Choonara spoke to acclaimed Marxist theoretician David Harvey about capitalism's current crisis and his online reading group of Karl Marx's Capital which shows the revival of interest in this work.

Some commentators view the current crisis as arising from problems in finance that then impinged on the wider economy; others see it as a result of issues that arose in production and then led to financial problems. How do you view it?

It's a false dichotomy that's being posed. There is a more dialectical relationship between what you might call the "real" and "financial" sides of the economy. There is no question that there has been an underlying problem of what I would call "over-accumulation" for a considerable time now. And in part the movement into investing in asset values rather than production is a consequence of that. But as the search for new forms of asset value developed you also saw financial innovation that created the possibility of investment in hedge funds and those sorts of things.

There was a long-term process in which the rich looked for reasonably high rates of return and began to invest in a whole series of Ponzi schemes - but without Bernard Madoff at the top. In the property market, stock market, art market and derivatives markets, the more people that invest, the more prices go up, which leads to even more people investing. All of those markets have a Ponzi character to them. So there is a financial aspect to the crisis but unless you ask why the most affluent were taking that path you miss out on the real problem.

You mention a crisis of over-accumulation. Can you explain that concept?

Capitalists always produce a surplus product. A healthy capitalism has to grow at 3 percent per year; the problem is to find where you can achieve that 3 percent growth. There are various blockages. For instance, if capital is confronting labour problems, then it is hard for it to find an outlet and over-accumulation occurs. If it faces problems in the market, the same issue arises. Over-accumulation is any situation in which the surplus that capitalists have available to them cannot find an outlet, whether through labour constraints, market constraints, resource constraints, technology constraints or whatever.

In this context you have talked about mechanisms such as a "spatial fix" in which surplus capital is shifted abroad rather than accumulated at home. Would you see the growth of the financial system as another type of "fix"?

If you move towards a spatial fix you need a sophisticated financial system to achieve it. To the degree that a spatial fix was being sought after the 1970s, capitalism required a set of international financial institutions that would facilitate the flow of funds to China, India, Mexico or wherever. So the new financial architecture that emerged from the 1970s onwards was, in part, to facilitate ease of capital movement around the world.

But then the financialisation that occurred became an end in itself. You start to find new markets emerging in the 1990s in currency derivatives, interest rate swaps, etc. They grew from almost nothing in 1990 to about three times the output of the global economy in 2006.

The explosion of credit that accompanied this also helped capitalists to hold down wages.

There were many aspects to the crisis of the late 1960s and early 1970s but one fundamental aspect was the power of labour, and breaking the power of labour became terribly important. This was partly done by migration policies, by outsourcing and offshoring, and also by the political attacks by Ronald Reagan, Margaret Thatcher and others. By 1985 the power of labour had effectively been broken.

Ever since the 1970s we've been in a situation of what I'd call wage repression in which real wages didn't really rise at all. But that led to problems in the market. If you restrict wages you have a problem with aggregate demand. One way that problem was solved was by giving working people credit cards and allowing them to go into debt. Household debt in the US has tripled in the last 20 years or so.

Again a key role was played by financial institutions. The best example I can think of is financial institutions lending money to builders and developers to construct housing, say around San Diego, then facing the problem of who is going to buy this stuff. The financial institutions then lend to working class people so they can buy the houses. After a while there aren't enough "respectable" working class people to lend to, so they start to lend to those with very low credit ratings, which led to the emergence of subprime over the past five or six years.

The financial institutions have been operating on both sides - the production and the consumption of housing. They brought the whole of the population into a serious state of indebtedness. Now at some point or other, if indebtedness rises to a level that is no longer consistent with income, the thing is going to break down. That's what we're seeing right now.

The bubbles in asset values also concealed some of the problems.

When asset values are rising everybody thinks they are better off. A person who bought a house in 2000 for maybe $300,000 saw its price rise to maybe $500,000 four years later. If they cashed out they were $200,000 richer. Everyone starts to be in that position, not just corporations. So, yes, it conceals what the nature of the problem is. If there is enough collective expectation that the housing market is going to go up forever, you get the kind of asset bubble that goes on and on - until now.

Personally I was expecting a crash in the housing market in 2003. It didn't happen. I kept thinking to myself, am I crazy? It didn't happen in 2004 and I thought, am I even crazier? By 2005 things were getting ridiculous. In the end even I started to believe we were in a different world and that I'd been wrong. Then in 2006 things started crumbling and I realised I'd been right.

When I last interviewed you for Socialist Review in February 2006 you said, "I'm nervous about the possibility of a major financial crisis breaking out in the US." Just how major do you think the current crisis is?

I was nervous about the US situation at the time I brought out A Brief History of Neoliberalism in 2006 and when I brought out The New Imperialism book in 2003. Back then I said that if the US was any other country it would be visited by the IMF. I think one of the things we have to realise is that if there had been a crisis in 2003, it would not have been as serious as the current one. The crisis will now have to take care of the past six years of profligacy.

Also if you compare it to the regional crises that happened before, such as the South East Asian crisis of 1997-98, there was always the US market to sell things to. But today where on earth is your market going to be?

We are in for a very difficult period. I can't see us coming out of this for a number of years. But when I say "us" I think there will be a difference in regional impacts. I guess that while East and South East Asia are in a lot of trouble right now, because of the collapse in export-driven industrialisation due to the contraction of the US market, they are likely to be able to stimulate their domestic markets and come out of this with less violence than, say, the US.

The US is going to have to bear the brunt of this crisis, and of course people there are not used to it. If you lived in Argentina you'd be saying, "Not again!"

You have argued that, while the global role of the US is likely to be diminished, rivals such as China cannot currently take its place.

I don't think China has any interest in supplanting the US as the global hegemonic power. It has a great interest in propping up the US. There is a complicated relationship between the US and China. The US relies very heavily on Chinese investment in the bonds issued by the US treasury. But the move by the US Federal Reserve to put a trillion dollars or so into this market in late March immediately saw the dollar falling.

I worry about what the Chinese will do in the face of a rapidly falling dollar. The US dollar has stayed remarkably stable; in fact it's gained against other currencies in the past six months or so. But that may be reversed. It's a delicate situation.

The Chinese are in a better situation than the US. Their banking system is not disrupted in the same way and they have more room for manoeuvre in terms of their surpluses. If they start to coordinate with Japan and South Korea, and if the Taiwanese throw in their lot with China economically, you're likely to see the emergence of an East Asian collaborative zone. I'd not be surprised to see an East Asian regional bank along the lines of what is being proposed in Latin America.

Regionalisation is one process that we may see, which would leave the US as one powerful region alongside many others and without the power it has exercised over the global economy.

But the problem now is that China is sitting on trillions in dollar-denominated assets.

Yes. They are between a rock and a hard place. If they let the dollar decline they lose money. If they continue to invest in it they may lose even more in the long run. There's considerable debate inside China. When they set up sovereign wealth funds, which invested in, say, the Blackstone Group, and lost money, there was a lot of internal criticism.

If there is a run on the US dollar, which is something I think everybody fears and nobody wants to talk about, then the consequences will be catastrophic. Regional configurations such as East Asia will have no option but to go it alone and the same will apply to Europe and Latin America. It will mean competition between regional blocs, the sort of thing that happened in the 1920s and 1930s with very unhealthy results.

Does the increasingly global nature of production make collapse into protectionism less likely than in the 1930s?

It makes it less likely at certain levels of production but in the face of a crisis you get very rapid reconfigurations. Consider how fast the de-industrialisation of Britain occurred in the late 1970s and early 1980s. The reconfiguration of production relations took place in the space of about ten years. Just because production systems and commodity chains are stretched over multiple spaces it doesn't mean they can't be cut up. You could have China cutting off outside suppliers and adopting an import-substitutionalist policy, which I suspect is going to emerge as a respectable way to deal with the current crisis.

So don't anticipate that just because everything is now more globally connected we can't disconnect it. However, having said that, there are vested interests involved. So there will be a political struggle over this.

On your website davidharvey.org you've been running an online reading group of Karl Marx's Capital. Are you surprised by the massive interest this has generated?

Yes, astonished! It seems to have come out just at the right moment. I get emails from people saying, "I always wanted to read this book and finally I have got through it," which is gratifying. I have tried to lay out something people can understand and work from, and then develop their own political ideas around.

It is important in approaching Capital to have some grasp of the overall dynamics of the system, and not just undertake a close reading of the first volume. How can this be achieved?

People really need to read a lot of Marx - volumes two and three, Theories of Surplus Value, the Grundrisse and so on. But I try to say, in the final lecture I think, that there are things that Marx misses. The nature of his project was the critique of classical political economy as much as it was an analysis of the dynamics of capitalism.

For instance, Marx did not want to deal with the question of interest. But at various points, even in volume one of Capital, the question of interest and credit becomes central - for instance in the discussion of the centralisation of capital and in the chapter on money. There is an issue here of the role of what I call the "state-finance nexus". In the Communist Manifesto, Marx and Engels argue for the centralisation of the means of credit in the hands of the state. In the section on primitive accumulation in Capital, Marx talks about the rise of the bankocracy, the rise of state finance and the national debt as crucial moments.

If you really want a good analysis of capitalism, you have to put the question of the state and finance almost up front, whereas Marx puts it at the back - you have to get to volume three of Capital. It can be misleading to concentrate on production rather than, say, the mobilisation of money-capital. There are limits to how far you can take the volume one analysis if you want to understand how capital accumulates and how it circulates.

In your book Limits to Capital you sought to develop a more coherent picture from Marx's fragmentary writings on interest, credit, etc. You seem to imply that more work in this area is needed.

A lot of people have been working on finance capital over the past ten or 15 years and there's now an extensive literature on this. It is valuable work. But one of the problems I have is that it tends to isolate the financial system from the overall dynamics of capitalism - as in the dichotomy implied in your first question.

What routes are there out of the current crisis?

How we come out of the crisis depends fundamentally on the balance of class power. I don't yet see the emergence of a coherent class opposition to the way, for example, that the British or US governments are trying to get out of the crisis.

We are beginning to get a populist outrage, which could produce something equivalent to political movements that have emerged in Latin America. I'm hoping that a coherent movement will start to crystallise which will say, "We don't want to go out of this crisis only to enter an even deeper one in five years time," and which will demand a radical transformation of the system.

The powers that be are trying to come out of the crisis without changing the fundamental dynamics of class power, but there's a widespread sense that these have to change. It's amazing to see the popular discontent here with Barack Obama's economic team. For many of us, the people he selected were appalling. Fascinatingly, many people in the country would probably agree with us.

David Harvey's books are available from Bookmarks. A new book, based on his online Capital reading group, will be out later this year. David Harvey will be speaking at Marxism 2009.